The Role of Risk Allocation in Minimizing Disputes in Construction Contracts

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The British University in Dubai (BUiD)
An increase in the litigation cases resulting from the outbreak of mismanagement in construction contracts has prompted the need to examine the cause of disputes in construction projects. This research study delved into this issue by examining the role of risk allocation to minimize disputes in construction contracts via litigated cases that are analyzed using the concept of transaction cost economics theory. By so doing, the researcher sourced for three related cases from different legal portal archives and examined the causes that led to the case being a litigation case. The three litigation cases were examined using qualitative content analysis methodology. The analysis led to the three tier categories that were identified as the causes of disputes in the cases. The clients related causes involved the approach to project management, communication problems, errors in design, and contracting details, while contractors related causes included contracting details, approach to project management, development of bid, and communication problems. Subsequently, the risks across the cases were identified as concurrent delay and differing site conditions. The findings of the litigation cases were used to consolidate the proposition of the study. In this study, the contractors were seen to be held responsible for most of the risks within the project contract, which was as a result of misinterpretation/misrepresentation of contract agreement, acting on an implied contract and promises. It was concluded that the construction contracts can serve as a medium through which the contractual parties can co-exist and operate within a cooperative environment. Thereafter, recommendations were proffered on the need to properly allocate project risk accordingly to the party that can best handle the risk with the lowest transaction cost involvement.
risk allocation, transaction cost economics, construction contracts